ECB Says Deutsche Bank “Systemic Threat” Is “Not ECB Fault”

The potential collapse of Deutsche Bank and the systemic risk it poses to banks and the European financial and monetary system moved into the German political sphere yesterday. The German government denied it was preparing a rescue of the embattled bank and the Bundestag attempted to ask questions of ECB President Mario Draghi about the causes of the “systemic risks” posed by the bank.

The ECB president brazenly “refused to answer questions” regarding Deutsche Bank during a closed-door meeting in the German parliament. Afterwords in conversation with journalists, he denied that the negative interest rates being imposed by the ECB are partly responsible for Deutsche Bank and the German financial system’s troubles.

However, many analysts rightly assert that zero interest rate policies (ZIRP) and now negative interest rate policies (NIRP) are a factor and partly contributing to the challenges facing banks in much of the western world. Not to mention causing bubbles in many property markets and indeed in stock and bond markets.

“If a bank represents a systemic threat it cannot be because of low interest rates. It has to be for other reasons,” Mr Draghi asserted to reporters somewhat dogmatically and simplistically. He was contradicted by the head of Germany’s BdB banking association, Michael Kemmer, who told Deutschlandfunk radio that the ECB’s low interest rate policy was partly responsible for the current problems that Deutsche Bank and Commerzbank are facing.

This morning, Commerzbank, the second-biggest bank in Germany after Deutsche, suspended its dividend and revealed it is slashing more than 9,000 job losses as it too desperately tries to shore up its business in the face of ultra-low interest rates and increasing loan losses.

Anxiety over eurozone banks has risen since the market turmoil following the June UK vote to leave the EU. Until recently, however, concerns have focused on the bloc’s periphery, particularly banks in Italy.

Now the banking crisis is moving to the core. This poses the real risk of financial contagion in the European monetary system and the global banking system.